Negligence and conflict claims in Banksia collapse
In particular, receiver McGrathNichol is looking into why investors' money was siphoned into a stand-alone entity called Banksia Mortgage Fund, which maintained a close relationship with Banksia management.
Speaking at an information session in Kyabram, in northern Victoria, where many of the investors live, partner Tony McGrath said he was investigating potential corporate mismanagement relating to a conflict of interest between Banksia and the separate fund.
"[Banksia management] have used money they've raised, designed to be lent to third parties, to lend to an internal vehicle," he said. "When they lent that, they didn't always maintain a priority position."
The receiver is also investigating potential breaches of the law by auditors, who approved of the lender's accounts just weeks before its collapse.
"There were a set of accounts that were signed off in September that said the company was in a surplus position to the tune of $24 million," Mr McGrath said. "Today, we are telling debenture holders that they are in deficit of around $200-$300 million - that's quite a significant change."
Mr McGrath said there was a "whole raft of law" around auditor negligence that the receiver was evaluating, but that more information was needed in order to establish whether legal action would be worthwhile for investors.
Mr McGrath reiterated to debenture holders that the most they would likely recover was 50¢ to 65¢ for every dollar they invested in Banksia. They have already been issued with 20¢.
A return of 65¢ could take up to three years.
"The people who were exposed to the company were hard-working country people who effectively dealt with Banksia as if it was their local bank," Mr McGrath said.
A report by the receiver, released earlier in the month, revealed Banksia may have been trading insolvent for some time before the lender collapsed due to "outdated" and "lazy" valuations of its mortgage portfolio. It also revealed the corporate regulator had raised concerns about Banksia's position as early as May - five months before the board and trustees froze more than $660 million in assets and appointed a receiver.
Frequently Asked Questions about this Article…
The Banksia collapse is being investigated because the receiver, McGrathNichol, found signs of potential auditor negligence and conflicts of interest. Investigators are looking at whether investors' funds were siphoned into a related entity (the Banksia Mortgage Fund) and whether auditors wrongly signed off accounts just weeks before the lender failed.
Receiver McGrathNichol, led publicly by partner Tony McGrath, is investigating possible corporate mismanagement, conflicts between Banksia and the Banksia Mortgage Fund, and potential breaches of the law by auditors who approved the lender’s accounts shortly before the collapse.
The Banksia Mortgage Fund was a separate, stand‑alone vehicle closely linked to Banksia management. The receiver says money raised to be lent to third parties was instead lent to this internal vehicle, and those loans didn’t always keep a priority position—creating a potential conflict of interest and corporate governance issue.
Yes. The receiver is investigating potential breaches of the law by auditors after accounts signed off in September showed a $24 million surplus, while the receiver now reports a deficit of around $200–$300 million. McGrathNichol says there is a 'whole raft of law' around auditor negligence that needs further evaluation before deciding on legal action.
The receiver told debenture holders the likely recovery range is about 50c to 65c for every dollar invested. Debenture holders have already been issued 20c, and a full return up to 65c could take up to three years.
A receiver’s report indicated Banksia may have been trading insolvent for some time. The report flagged 'outdated' and 'lazy' valuations of its mortgage portfolio, and the corporate regulator had raised concerns as early as May—months before the board and trustees froze more than $660 million in assets and appointed a receiver.
There’s no fixed timeline. The receiver is still gathering information to determine whether pursuing legal action (for example against auditors) would be worthwhile. The receiver did note that getting a recovery up to 65c could take as long as three years.
The Banksia case highlights risks investors should watch for: conflicts of interest when funds are closely linked to management, the importance of reliable valuations of loan portfolios, and auditors’ role in verifying accounts. It also shows how regulator warnings and sudden discrepancies between signed accounts and later deficits can signal serious trouble.
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